India's FY26 GDP Growth Reflects Resilience of Domestic Demand Amid Global Uncertainty

India's Economy Enters Period of Heightened Global Uncertainty with Strength

India's 7.8% GDP growth in Q4 FY26 has once again surpassed expectations, but the quality of growth is the more important takeaway. The economy remains fundamentally resilient and has entered a period of heightened global uncertainty stemming from the Middle East crisis from a position of strength.

The Gross Value Added (GVA) growth of 7.9% in FY26, which outpaced GDP growth, suggests that India's expansion was not solely demand-driven but was also supported by strong production momentum. The strong performance in services (9.3%), manufacturing (10.7%), and construction (7.4%) was complemented by healthy private consumption growth of 7.6% and robust gross fixed capital formation growth of 8.2%.

Read also: LinkedIn Co-founder Reid Hoffman to Depart Microsoft's Board

Fiscal measures announced last year, including direct tax relief and GST-related reforms, helped strengthen the domestic drivers of growth throughout the year. This is reflected in high-frequency indicators remaining resilient through the end of the quarter, with gross GST collections growing around 7.7% in Q4, passenger vehicles rising 17%, and two-wheelers increasing 25%, the highest growth since June 2022.

Despite the uncertainty, India managed to shield consumers from higher fuel costs for an extended period, with no meaningful pass-through of pump price increases until May. Government-led public investment also played a critical stabilising role, with capital expenditure utilisation rising from 70.3% by December 2025 to 97.6% by March 2026, reflecting a strong year-end push in infrastructure spending.

Export growth remained robust, accelerating to 9.3%, the strongest pace since FY23, suggesting that the impact of higher US tariffs on India's export performance remained limited. Front-loading of merchandise exports ahead of the increase in US tariff rates, combined with robust services exports, helped sustain export momentum during three of the four quarters of FY26. Total exports moderated to 3.7% only in the last quarter.

However, the nominal story is more nuanced. Real GDP expanded by 7.7%, while nominal GDP grew by 8.9%, reflecting a softer GDP deflator as inflation moderated sharply during the year to 2.1% from 4.6% in FY25. Lower inflation supported household purchasing power and real consumption, but it has also kept the nominal GDP base relatively compressed in the past fiscal year. While the fiscal deficit-to-GDP ratio has been maintained at the planned 4.4%, the lower nominal GDP denominator has implications for debt metrics, with debt-to-GDP now estimated at 57.4%, compared with the earlier estimate of 56.1%.

Read also: The Evolution of Global Markets: Adapting to a New Economic Landscape

Deloitte remains cautiously optimistic about the economic outlook for this fiscal year. With geopolitical tensions in the Middle East likely to keep commodity and fuel prices elevated, India faces risks from a wider current account deficit, higher inflation, and pressure on the rupee. Reflecting these risks, the RBI revised its FY27 growth forecast to 6.6% in its June policy review, down from 6.9% projected in April. It also decided to keep the policy rates unchanged, to prioritise supportive domestic financial conditions for growth right now.

India has consistently emerged stronger by adapting to disruption and building resilience from periods of crisis, including the Global Financial Crisis in 2008 and the pandemic in 2020. Crises often accelerate reforms that might otherwise take years to implement. The government has responded swiftly by deferring customs duties for trusted manufacturers and addressing tax-related concerns of foreign investors in government securities. Lower customs duties will help manufacturers manage rising input costs, improve working capital efficiency, and strengthen supply-chain resilience at a time of elevated global uncertainty.